Free Insurance Licensing Virginia-Life-Annuities-and-Health-Insurance Practice Exam with Questions & Answers | Set: 2

Accidental death and dismemberment (AD&D) insurance provides benefits if the insured's death is caused by an accident, such as a commercial airline crash. This coverage is specifically designed for accidental injuries or death, and it does not typically cover natural causes such as heart attacks, strokes, or suicide.

A contingent beneficiary is designated to receive the policy proceeds only if the primary beneficiary is unable to do so, usually due to predeceasing the insured.

Exact Extract (Virginia Life Insurance Study Guide): “Contingent beneficiary—receives benefits if the primary beneficiary dies before the insured.”

References (Virginia Documents / Study Guide):

— Virginia Life Insurance Examination Outline, Beneficiary Designations

Variable insurance products, such as variable life insurance and variable annuities, are regulated at both the state and federal levels because they involve securities components. In Virginia, oversight is shared by the Bureau of Insurance and state securities authorities, while the Securities and Exchange Commission provides federal regulation.

The State Attorney General’s office does not directly regulate or establish rules for variable insurance contracts. Its role is limited to enforcement of general consumer protection laws rather than insurance product regulation. Therefore, option D is the correct exception.

Virginia licensing education stresses the dual regulation of variable products and the requirement that agents selling them hold both insurance and securities registrations.

Detailed Answer in Step-by-Step Solution:

Employer-paid premiums for group health plans like major medical (B), dental (C), and HMOs (D) result in tax-free benefits under IRC Section 106.

Disability income (A) benefits are taxable if the employer pays the premium, per IRS rules, unlike medical benefits.

The Virginia study guide, aligned with IRS regulations, notes that employer-funded disability income benefits are taxable to the recipient, while medical, dental, and HMO benefits remain tax-free. Reference: Virginia Life, Annuities, and Health Insurance study guide, section on "Taxation of Insurance Benefits."

Virginia law obligates agents to act as fiduciaries with premiums collected and to promptly remit payments to the insurer. Exact extract: “An agent who accepts funds from an applicant shall hold such funds in a fiduciary capacity and shall promptly remit them to the insurer.”

Group credit life insurance is typically structured as decreasing term insurance. This means the death benefit decreases over time, generally in line with the outstanding balance of a loan or debt that the insurance is intended to cover. It is commonly used for loans, such as mortgages, where the liability decreases as the debt is paid down.

An agent must provide an outline of coverage to an applicant for long-term care insurance at the time of the initial solicitation. This ensures that the applicant is fully informed about the key features and benefits of the long-term care insurance policy before they make a decision. The outline provides details about the policy's coverage, limitations, exclusions, and other essential elements.

When a corporation buys disability income insurance on a key employee, the corporation is both policyowner and beneficiary. Premiums are not deductible because the business is the direct beneficiary. However, benefits received by the business are tax-free when the insured employee becomes disabled.

Exact Extract (Virginia Disability Income Study Guide): “Key person disability insurance—premiums are not deductible to the business, but benefits received are tax-free to the business.”

References (Virginia Documents / Study Guide):

— Virginia Health Insurance Examination Outline, Business Uses of Disability Insurance

The doctrine of reasonable expectations holds that insurance contracts will be interpreted as a reasonable person would expect, even if fine print suggests otherwise. Exact extract: “Under the principle of reasonable expectations, coverage is interpreted in line with what a prudent policyholder would believe was provided.” This prevents insurers from denying claims based on obscure or technical language.

Replacement regulations are intended to safeguard the policyowner, ensuring they are fully informed of disadvantages, such as surrender charges or loss of benefits, before replacing an existing policy.

Exact Extract (Virginia Replacement Rules): “Replacement provisions are designed to protect the policyholder by requiring full disclosure of the implications of replacing an existing policy.”

References (Virginia Documents / Study Guide):

— Virginia Life Insurance Replacement Regulations (14VAC5-20-10 et seq.)